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Steel contract talks could change buying patterns

Keywords: Tags  CRU, CRU discounts, contract talks, AK Steel, James L. Wainscott, steel sheet, catherine Ngai


NEW YORK — The steel sheet market could see a noticeable shift away from contract buying and into spot buying as a result of ongoing 2014 contract negotiations between U.S. steelmakers and customers.

While U.S. steel mills have held firmly to previously announced plans to move away from index-minus pricing, a number of options have been brought to the table, including fixed-price options, quarterly and six-month options, and just buying off an existing index without a discount ( amm.com, Oct. 23). However, some customers question just how attractive contracts look so far.

"Why would I even want to commit to that?" one Midwest service center source asked.

A possible result is that buyers could prefer to procure more of their stock inventory tonnage on the spot market rather than lock in a contract because the amount of benefit has diminished greatly. But if enough buyers move over to spot buying, that could potentially hurt mills that are less competitive or could make the spot market much more volatile.

"People complained about how volatile the markets were back in 2008-09. But with mills holding firm, this means that service centers are going to be buying more at a time. This will lead us (back) to more volatility," a second Midwest service center source said. "When they think prices are low they’ll buy more and push out lead times, and then hold off when prices are high. Service centers are going back to playing the game."

AK Steel Corp. chairman, president and chief executive officer James L. Wainscott said in an earnings conference call this week that the steelmaker is trying to move away from the "volatile" spot market and more into contract business.

"I think the people who are buying on CRU-minus right now have been hit with such a shock that they haven’t caught their breath because the mills are holding on, and it’s not even a question at this point," one East Coast service center source said. "With no CRU-minus deals, the mills are basically telling people you’re a spot buyer now. For huge (end-user) accounts, you can remain a CRU buyer for the stability. But for stock stuff, would I want to be a CRU buyer? I don’t think so. At this point, it’s easier to play the market."

Others have complained, though, that a true spot market doesn’t exist at the moment because spot and index-minus deals are extensive, making it difficult to differentiate a spot buyer from a contract buyer. While a downside for U.S. mills in the possible buying pattern change is losing secured tonnages, an upside could be that mills take advantage of higher pricing seen in the third quarter, when U.S. mills kicked off a number of successful price hikes.


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